Bulletin No.A114 dated 09 November 2019

BULLETIN(Issue No.114)DT.09-11-2019

Compiled by Vinod Kumar Goel, Advocate

NOTIFICATIONS

SECTION 12A, READ WITH SECTION 119 OF THE INCOME TAX ACT, 1961 - CHARITABLE OR RELIGIOUS TRUST - REGISTRATION OF - CONDONATION OF DELAY IN FILING OF FORM NO. 10B FOR YEARS PRIOR TO ASSESSMENT YEAR 2018-19 - AMENDMENT IN CIRCULAR NO. 10, DATED 22-5-2019

CIRCULAR NO. 28/2019 [F. NO. 197/55/2018-ITA-I], DATED 27-9-2019

In supersession of this office Circular No. 10 dated 22.5.2019 on the above mentioned subject, the date mentioned in sub para (ii) of para 4 may be read as 31.3.2020 instead of 30.9.2019.

Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payments exceeding prescribed limits (Rule 6DD) - Assessment year 2005-06 - Assessee was a company engaged in manufacturing of refined oils, solvent oils and de-mealed meals - All purchases made by assessee from parties were supported by registered dealer invoice along with valid transit, freight charges etc. of supplier and payments made to suppliers were credited to bank accounts via demand drafts - Whether since transactions were made through bank account of assessee through uncrossed demand draft and there was no material to hold that purchases had not been made, Tribunal was not justified in confirming disallowance under section 40A(3) - Held, yes [Para 13] [In favour of assessee]

Section 261, read with section 10A and section 40(a)(ia), of the Income-tax Act, 1961 - Supreme Court - Appeal to (Monetary effect) - In appellate proceedings, Tribunal held that disallowance made under section 40(a)(ia) would not affect assessee's liability to tax because even if said amount was disallowed and added to income, same would be exempted under section 10A - High Court upheld Tribunal's order - Whether in view of fact that department itself admitted that monetary implication involved in special leave petition was only Rs. 44 lakhs, same deserved to be dismissed - Held, yes [Para 4][In favour of assessee]

Section 148, read with section 159, of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for (Dead person) - Assessment year 2012-13 - Whether a notice issued under section 148 in name of a dead person would not be a valid notice - Held, yes - Original assessee, namely, BHM died on 26-5-2017- Assessing Officer issued a reopening notice under section 148 in name of BHM on ground that on basis of information in Annual Information Return (AIR), it was found that said deceased assessee had sold one immovable property amounting to Rs. 82.89 lakhs but did not file any income tax return, thus, income to said extent had escaped assessment due to failure of BHM to submit her return of income - Petitioner being heir and legal representative of BHM contended that BHM had already expired and, therefore, impugned notice in name of BHM was not valid - Whether impugned notice issued under section 148 against BHM was to be quashed and set aside - Held, yes [Paras 6 to 8][In favour of assessee]

Section 69A, read with sections 292C and 158BC, of the Income-tax Act, 1961 - Unexplained moneys - A search was conducted at residential premises of assessee's father-in-law, namely, DLS, during which cash of certain amount was found and seized - At same time, a search was also conducted at another residential premises belonging to DLS, where assessee was residing but nothing was found there - Pursuant to notice issued under section 158BC, assessee filed his return of income - Assessing Officer completed assessment by making addition in respect of cash found in residential premises of DLS to income of assessee for reason, assessee used to live with his father-in-law and it was actually assessee who was accumulating cash found at residence of DLS - It was noted that section 292C provides that if money was found in possession of any person in course of search under section 132, it would be presumed that such money belonged to such person and, thus; since in instant case seized cash was found in possession of DLS, it could not be presumed to belong to assessee - Further, DLS in response to summons issued under section 131 filed his written submission categorically admitting that cash seized from his premises belonged to him - He had also filed a tax return for block assessment showing said seized cash and also enclosed cash flow statement with his return explaining recovered cash – Whether, on facts, no addition could be made to income of assessee in respect of impugned cash found at premises of his father-in-law - Held, yes [Paras 16, 17, 18, 21, 25, 26 & 27] [In favour of assessee]

Section 12A, read with section 11, of the Income-tax Act, 1961 - Charitable or religious trust - Registration of (Cancellation of Registration) - Whether at stage of registration, question of application of income of trust is premature - Held, yes - Director (Exemption) rejected petitioner's application for registration under section 12A on ground that 29 per cent of its gross receipts were expended on making donations for religious purposes which was not in accordance with objects of trust - Whether where undisputedly 71 per cent of receipt of trust were being spent in accordance with its object, it was established that trust was genuine - Held, yes - Whether a partial expenditure which was not authorized by trust would not make trust non-genuine and only consequences would be that benefit of section 11 would not be available to that extent - Held, yes [Para 5] [In favour of assessee]

Section 69A, read with section 153C, of the Income-tax Act, 1961 - Unexplained money (Cash receipts) - Assessment year 2007-08 - Assessee, an interior designer, rendered services to 'S' - A search was conducted in premises of 'S' during of which certain documents were seized showing that some unaccounted cash payments were made to assessee - Accordingly, proceedings were initiated under section 153C and addition was made to assessee's taxable income - Tribunal finding that no unexplained payment was made in relevant assessment year, deleted addition made by Assessing Officer - High Court by impugned order held that since there was material on record pointing out that unexplained cash payments were made to assessee in earlier assessment year, impugned order passed by Tribunal that no addition could be made in assessment year in question, did not require any interference - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes [Para 7] [In favour of assessee]

Section 143 of the Income-tax Act, 1961 - Assessment - General (Assessment on non-existing company) - A company 'HDTS' ceased to exist pursuant to order of High Court dated 25-7-2008 and got amalgamated with company 'HICS' - Further, name of new amalgamated entity got changed to 'TMTS' (respondent-assessee) - Assessing Officer framed assessment on 22-2-2011 on 'HDTS' that ceased to exist from 25-7-2008 - Tribunal quashed said assessment and held that assessment framed by Assessing Officer on a non-existing company would be void ab initio - Whether Tribunal was justified - Held, yes [Para 15][In favour of assessee]

Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock (Computation of) - In appellate proceedings, Tribunal took a view that since title of goods ready for shipment had not been transferred to foreign buyers, value of those goods could be included in stock in hand at cost or market price, at option and as per regular practice of assessee - Revenue raised a plea that for sales tax purpose value of goods lying at port was taken at invoice value and, thus, same value was to be adopted for tax purposes - High Court rejected revenue's plea by holding that sales tax computation and declaration would be made in accordance with provisions of Sales-tax Act and same would not make any difference for valuation of stock under provisions of Act - Whether, on facts, SLP filed against order of High Court was to be dismissed - Held, yes [Para 2] [In favour of assessee]

Section 194C, read with section 44AB, of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/subcontractors, payments to (Statutory Audit) - Assessment year 2007-08 - In course of assessment, Assessing Officer noted that assessee had made certain contractual payments without deducting tax at source under section 194C - He thus, disallowed said payments under section 40(a)(ia) - Tribunal noted that statutory provisions contained sub-sections (1) and (2) of section 194 C prevailing at relevant time excluded individuals and Hindu Undivided Families from requirement of deducting tax at source as long as their turnover did not exceed limit for statutory audit - Further, on facts, Tribunal concluded that assessee had qualified for exclusion clause and, therefore, requirement of deducting tax at source could not be applied - High Court upheld order passed by Tribunal - Whether, in view of aforesaid, SLP filed against High Court's order was to be dismissed - Held, yes [Para 2] [In favour of assessee]

Section 281B of the Income-tax Act, 1961 - Provisional attachment to protect revenue in certain cases (General) - Assessing Officer attached all assets and bank accounts of petitioner by passing provisional attachment order which continued notwithstanding completion of assessment for relevant assessment years - Whether when respondents had already collected over 21 per cent of demand raised and assessments for relevant assessment years had completed, attachment order under section 281B could not be allowed to continue and accordingly was to be set aside - Held, yes [Paras 25 and 26] [In favour of assessee]

Section 194H of the Income-tax Act, 1961 - Deduction of tax at source - Commission, brokerage etc. (Guarantee Commission) - In appellate proceedings, Tribunal held that payment of guarantee commission made by assessee to banks was not covered under 'commission or brokerage' as defined under section 194H - High Court upheld Tribunal's order - Whether, on facts, SLP filed against order of High Court was to be dismissed - Held, yes [Para 2] [In favour of assessee]

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital (Partial disallowance) - Assessment year 2006-07 - During relevant year, assessee filed its return claiming deduction of interest on borrowed capital - Assessing Officer found from accounts of assessee that assessee had both interest bearing funds and non-interest bearing funds - Assessing Officer thus apportioned total average loans given to subsidiary companies as being from interest bearing funds and non-interest bearing funds - Accordingly, a part of deduction claimed by assessee was disallowed - Whether since assessee had interest free funds in excess of loan granted to subsidiary companies, there was no warrant for applying proportion between interest bearing funds and non-interest bearing funds to disallow a part of deduction of interest claimed by assessee - Held, yes - Whether, therefore, impugned disallowance was to be deleted - Held, yes [Para 9] [In favour of assessee]